© EMC Publishing, LLC
5 Section 1 Understanding Supply © EMC Publishing, LLC
What Is Supply? Supply is the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period. Quantity supplied is the number of units of a good produced and offered for sale at a specific price. © EMC Publishing, LLC
What Does the Law of Supply Say? The law of supply states that as the price of a good increases, the quantity supplied of the good increases, and as the price of a good decreases, the quantity supplied of the good decreases. Price and quantity supplied - direct relationship. © EMC Publishing, LLC
The Law of Supply in Numbers and Pictures A supply schedule is a numerical chart that illustrates the law of supply. Supply schedule © EMC Publishing, LLC
The Law of Supply in Numbers and Pictures (cont.) A supply curve is a graph that shows the amount of a good that sellers are willing and able to sell at various prices. Supply curve © EMC Publishing, LLC
A Vertical Supply Curve Sometimes the quantity of a good that is available cannot change, regardless of price. When this happens, we get a vertical supply curve. An example is the number of seats in a movie theater. An increase in the price will not increase the amount of seats available, because there is not enough time to construct more seats. © EMC Publishing, LLC
A Firm’s Supply Curve and a Market Supply Curve A firm’s supply curve is a supply curve for that particular firm. A market supply curve is the sum of all firms’ supply curves. Parts (a), (b), and (c) show the supply curves for firms A, B, and C, respectively. The market supply curve, shown in (d), is the sum of the firms’ supply curve © EMC Publishing, LLC
© EMC Publishing, LLC
The Supply Curve Shifts 5 Section 2 The Supply Curve Shifts © EMC Publishing, LLC
When Supply Changes the Curve Shifts Supply can go up or down. These changes in supply will create a shift in the supply curve. As supply decreases, the supply curve shifts to the left. As supply increases, the supply curve shifts to the right. When supply increases, the supply curve moves to the right, from S1 to S2. When supply decreases, the supply curve moves to the left, from S1 to S3 © EMC Publishing, LLC
What Factors Cause Supply Curves to Shift? The prices of resources Technology also causes a shift in the supply curve. Technology is the body of skills and knowledge concerning the use of resources in production. advancement in technology Declines in technology © EMC Publishing, LLC
What Factors Cause Supply Curves to Shift? (cont.) Taxes on production. Subsidies are monetary payments made by government Quotas are restrictions on the number of units of a foreign-produced good, or import, that can enter a country. A quota decreases: supply = more supply = domestic production decreases = shift left A quota increase: supply = less supply = domestic production increases = shift right © EMC Publishing, LLC
What Factors Cause Supply Curves to Shift? (cont.) The number of sellers. Expectations of future price movements Weather © EMC Publishing, LLC
What Factor Causes a Change in Quantity Supplied? Price is the only factor that will change the quantity supplied of a good. © EMC Publishing, LLC
Elasticity of Supply elasticity of supply is the relationship between the percentage change in quantity supplied and the percentage change in price. (See the next slide.) Elastic supply exists when the percentage change in quantity supplied is greater than the percentage change in price. Inelastic supply exists when the percentage change in quantity supplied is less than the percentage change in price. Unit-elastic supply exists when the percentage change in quantity supplied is the same as the percentage change in price. © EMC Publishing, LLC
Elasticity of Supply (cont.) Percentage change in quantity supplied Percentage change in price Elasticity of supply = © EMC Publishing, LLC